Lukewarm Reception for R&D Tax Credit

President Obama's expected request this week for an expansion and permanent extension of the "research and development" (or R&D) tax credit is so far receiving a wary and rather lukewarm reception in the Senate.

The focus in tough midterm election years tends to be on more popular measures that help small businesses, but the R&D credit, as first reported by the New York Times, with a $100 billion price tag, traditionally helps the big guys, major corporations.

You'd be hard-pressed to find Republicans who oppose the tax credit, in general. In fact, Sen Orrin Hatch, R-Utah, introduced an extension of the credit retroactive for this year, but Republicans are skeptical about this one coming forward from Obama (beyond the fact that they don't want to hand Democrats any kind of victory ahead of the election).

The "pay-for" as reported by the Times, taxing multi-national corporations overseas' income to afford the 10-year credit, has already been used -- at least $9.8 billion worth for the $26b state aid bill that the president recently signed.

As taken from Politifact, here's what the recent "pay-for" did: from "rules to prevent splitting foreign tax credits from the income to which they relate" (worth almost $4.3 billion in newly captured revenue) to "denial of foreign tax credit with respect to foreign income not subject to United States taxation by reason of covered asset acquisitions" (worth more than $3.6 billion), to the "limitation on the amount of foreign taxes deemed paid with respect to section 956 inclusions" (worth $704 million).

Several senior Senate GOP leadership aides also told Fox News that Republicans are not likely to accept any proposal that raises revenue in other sectors to pay for a tax cut.

Jim Manley, spokesman for Senate Majority Leader Harry Reid, D-Nev, said that "no decisions" have been made on how any request from the White House would be treated.

"We are continuing  to work with the administration and others on how to proceed and on what the package should include. But if we are going to get anything done, Republican cooperation, which has been all but non-existent recently, will be necessary," Manley said.

One senior Senate Dem leadership aide told Fox News that Dems will wait for their members to return next week from the month-long recess before they decide what, if anything, they'll do with the White House request, adding,"R&D is a piece of the puzzle, but not the be all, end all."

One senior Senate Finance Committee (where tax bills are typically written) Democratic aide said, "There's just not enough time to get this done, I don't think. And our members want some bigger fish to fry. The small business bill and the tax cuts. That's the good stuff."

Some Democrats want to see an extension of the hiring incentive tax credit first put forward by Hatch and Sen. Chuck Schumer, D-N.Y., which offered a tax credit to employers who hire those Americans who have been out of work six months or more.

A Schumer aide this week said his boss is pushing an extension of the credit, which expires at the end of this year, and a removal of the six-month requirement, to try to have the maximum impact on hiring.

Hatch's attempt at a one year R&D extension was recently rebuffed by Reid in a broader fight over amendments to the small business bill, a measure that is currently pending in the Senate.

Manley said the R&D credit is not likely to be added to the small business bill.

It is possible, if support is there, that Senate Democratic leaders could try to attach the R&D credit as part of a larger tax bill, where Democrats would try to extend the Bush tax cuts for middle class Americans.  But that has yet to be decided, and it is very much unclear that Democratss could muster the votes, even in their own caucus, to renew the Bush tax cuts, if the top two tax brackets are allowed to revert back to pre-2003 levels, which Republicans say constitutes a tax hike.

All in all, the Obama-suggested R&D credit appears to be enjoying a modest reception in the Senate, and numerous Democratic aides are skeptical that it could get done in the few short weeks Congress will be in session before the October campaign push back home ahead of the election.

It appears far more likely Democrats will try to cue up other measures that would score more points with the voters back home.